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Foreign Exchange Analysis ~ 07 May 2024


GB Pound

What happened last week?

 Sterling traded as a function of the dollar last week as the UK had no significant data ahead of the interest rate announcement this Thursday.

 

What to watch for in the short-term?

 With some still believing the BoE may cut rates in June, markets will be looking for a shift to dovish rhetoric in this week’s interest rate announcement. As the base case is still a cut in August, any hints from Andrew Bailey for a June cut poses a downside risk for Cable.

 

What about the coming months? Even if Thursdays meeting rules out the possibility of a June rate cut, the underlying divergence of rates between the US and the UK will weigh on sterling over the coming months.

 

Calendar

Thursday 12pm | Interest Rate Decision

Friday 7am | GDP (YoY) (Q1)



US Dollar

What happened last week?

 In the Fed’s interest rate announcement Powell made efforts to rule out any further hikes but also pointed out that they are still a long way from being in a position to cut. Also last week, Friday saw a softer jobs report causing the dollar to move lower.


What to watch for in the short-term?

 With a quiet week for US data there is little to move the dollar until the next CPI report next week.


What about the coming months?

↑ The dollar continues to be the currency of choice for the medium term carry trade.  


Calendar

Michigan Consumer Sentiment Index (May)


Euro

What happened last week?

↓ While last week’s inflation data was slightly hotter than expected (2.7% Vs 2.6% consensus), prices continue to trend back toward the ECB’s 2% target.

 

What to watch for in the short-term?

Alongside softening inflation in Europe, growth data surprised to the upside on Friday (YoY GDP came in at 0.4% in Q1) which helped EURGBP appreciate last week. As there’s a lack of data in the UK and Europe in the short term, we could see volatility drop and the pair trade rangebound.

 

What about the coming months? The key EURGBP driver over the coming months is the number of cuts the ECB and BoE perform in 2024. Currently markets price c.75bp in Europe.




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